Quick Facts

Botswana’s economic freedom score is 69.8, making its economy the 36th freest in the 2015 Index. Its overall score is 2.2 points worse than last year, reflecting considerable declines in half of the 10 economic freedoms, including trade freedom, the management of government spending, and investment freedom. Although Botswana has registered the fourth-largest score drop in the 2015 Index, it remains the second-freest economy in the Sub-Saharan Africa region, and its overall score is well above the regional and world averages.

A significant increase in the trade-weighted tariff rate has resulted in a decline in Botswana’s trade freedom score. This increase, along with deterioration in the management of public spending, has moved Botswana out of the “mostly free” category.

Nonetheless, Botswana’s scores on many of the 10 economic freedoms are consistently among the region’s highest. The level of corruption is the lowest in Africa. An independent judiciary enforces contracts effectively and protects property rights, buttressing competitiveness.

Background

The Botswana Democratic Party has governed this multi-party democracy since independence from Britain in 1966. Ian Khama assumed the presidency in 2008 upon his predecessor’s resignation, won a five-year term in 2009, and won a second term in October 2014. Gomolemo Motswaledi, head of the opposition Botswana Movement for Democracy and vice president of the opposition Umbrella for Democratic Change coalition, died in a car crash in July 2014, increasing tensions in the run-up to the fall elections. With abundant natural resources and a market-oriented economy, Botswana has Africa’s highest sovereign credit rating. Diamonds account for one-third of GDP (about US$3.3 billion), and the diamond industry has transformed Botswana into a middle-income country. In an attempt to diversify the economy through tourism, Botswana has focused on conservation and developing extensive nature preserves. Botswana has one of the world’s highest HIV/AIDS infection rates but is also among Africa’s leaders in combating the disease.

Although Botswana continues to be rated Africa’s least corrupt country, there are almost no restrictions on the private business activities of public servants (the president is a large stakeholder in the tourism sector), and political ties often play a role in awarding government jobs and tenders. The legal system is sufficient to enforce secure commercial dealings, but the process is lengthy and time-consuming.

The top individual income tax rate is 25 percent, and the top corporate tax rate is 22 percent. Other taxes include a sales tax, a value-added tax, and a property tax. The overall tax burden equals 30.7 percent of GDP. Public expenditures amount to 35.7 percent of domestic income, and public debt equals 16 percent of the domestic economy. A sovereign wealth fund helps to ease fiscal cycles.

A more streamlined licensing process has eased business start-up procedures, but the overall pace of reform has slowed. Employment regulations are moderately flexible, and the non-salary cost of hiring a worker is relatively low. The inefficient agricultural sector is highly subsidized by the government, which also influences prices through state-owned enterprises and service providers.

Botswana’s average tariff rate is 6.4 percent. Importing goods can be costly. There are some limits on land sales to foreign investors. Botswana’s competitive banking sector is one of Africa’s most advanced. Credit is allocated on market terms, although the government provides some subsidized loans. The government has abolished exchange controls, and the Botswana Stock Exchange is growing.